Town of Monument v. State of Colorado

2018 COA 148

• Court: Colorado Court of Appeals
• Decided: October 4, 2018
• Docket: 17CA1663
• Status: Published

Opinion

The summaries of the Colorado Court of Appeals published opinions constitute no part of the opinion of the division but have been prepared by the division for the convenience of the reader. The summaries may not be cited or relied upon as they are not the official language of the division. Any discrepancy between the language in the summary and in the opinion should be resolved in favor of the language in the opinion.

SUMMARY October 4, 2018

2018COA148

No. 17CA1663 Town of Monument v. State of Colorado — Real Property — Restrictive Covenants; Eminent Domain

A division of the court of appeals holds that, under the

Colorado Supreme Court’s decision in Smith v. Clifton Sanitation

District, 134 Colo. 116, 300 P.2d 548 (1956), a restrictive covenant

banning certain uses of property is not a compensable property

interest in the context of an eminent domain case. Smith is not

limited to its facts, but instead announces a broad rule. In so

holding, the division rejects dictum to the contrary in City of

Steamboat Springs v. Johnson, 252 P.3d 1142 (Colo. App. 2010). COLORADO COURT OF APPEALS 2018COA148

Court of Appeals No. 17CA1663 El Paso County District Court No. 17CV30105 Honorable Eric Bentley, Judge

Town of Monument, a statutory municipality of the State of Colorado,

Plaintiff-Appellant,

v.

State of Colorado, by and through the State Board of Land Commissioners; Forest View Company; and Raymond Decker,

Intervenors-Appellees.

JUDGMENT REVERSED AND CASE REMANDED WITH DIRECTIONS

Division VII Opinion by JUDGE J. JONES Ashby and Harris, JJ., concur

Announced October 4, 2018

Murray Dahl Kuechenmeister & Renaud LLP, Malcolm Murray, Joseph Rivera, Lakewood, Colorado, for Plaintiff-Appellant

Cynthia H. Coffman, Attorney General, Ed Hamrick, Senior Assistant Attorney General, Eva La, Assistant Attorney General, Denver, Colorado, for Intervenor- Appellee State of Colorado

Hanes & Bartels LLC, Richard W. Hanes, Brenda L. Bartels, Colorado Springs, Colorado, for Intervenors-Appellees Forest View Company and Richard Decker ¶1 The Town of Monument (the Town) bought a parcel of real

property in a residential subdivision, intending to construct a

municipal water storage tank on the lot. There was only one

problem: a restrictive covenant prohibiting such structures applies

to all lots in the subdivision. So the Town filed this case, seeking to

use its power of eminent domain to have the court declare its

property free of the restrictive covenant. Not so fast, said some of

the other owners of lots in the subdivision, who had intervened in

the case.1 They said because the restrictive covenant benefits all

property in the subdivision, the Town can’t eliminate the restrictive

covenant on its lot without paying every property owner in the

subdivision an amount compensating each of them for the loss in

value to their respective properties. The State Board of Land

Commissioners (Land Board), which owns several lots in the

subdivision, presented an even greater obstacle to the Town’s goal.

It asserted that because the restrictive covenant is a compensable

interest in the property, and the power of eminent domain can’t be

used against the State, the Town can’t eliminate the restrictive

1 The Town originally named only itself (as the owner of the parcel in question) and the county treasurer as defendants.

1 covenant on its lot. The Town fought back, claiming that the

restrictive covenant isn’t a compensable interest in property in the

context of an eminent domain case.

¶2 Everyone recognized that the case came down to deciding

whether the Colorado Supreme Court’s decision in Smith v. Clifton

Sanitation District, 134 Colo. 116, 300 P.2d 548 (1956), or the

Colorado Court of Appeals’ decision in City of Steamboat Springs v.

Johnson, 252 P.3d 1142 (Colo. App. 2010), controls. In the former,

an eminent domain case, the court held that a restrictive covenant

wasn’t a compensable property interest. Smith, 134 Colo. at 119-

21, 300 P.2d at 549-50. In the latter, also an eminent domain case,

the division said that a restrictive covenant was a compensable

property interest. Johnson, 252 P.3d at 1146.

¶3 The district court agreed with the intervening landowners. It

reasoned that Smith, which involved property owners who agreed to

a restrictive covenant for the clear purpose of preventing a

condemnation, must be limited to its particular facts; this case

doesn’t involve comparable facts; and Johnson sets forth the better

rule. This ruling rendered the Town’s condemnation action

untenable for several practical reasons, but also because the power

2 of eminent domain can’t be exercised against the State. As a result,

the parties stipulated to a dismissal of the case with prejudice. The

court granted the stipulation. The Town timely appealed from the

dismissal, raising only the issue whether Smith controls.

¶4 We hold that the holding and underlying reasoning of Smith

aren’t limited to that case’s particular facts. That is, the court

announced a rule of law — that a restrictive covenant isn’t a

compensable property interest in an eminent domain case — and

the rule isn’t limited to situations where the affected property

owners agree to the restrictive covenant in a clear attempt to thwart

acquisition of property by a public entity for public use. We

therefore reverse and remand the case for further proceedings.

I. We Have Jurisdiction

¶5 Though the Land Board stipulated to the dismissal with

prejudice so that the Town could appeal the issue presented, it now

argues that because of that dismissal we lack jurisdiction over the

appeal.2 The Land Board says the order ruling on the Smith issue

isn’t appealable because it didn’t resolve the case on the merits and,

2Forest View Company and Raymond Decker, the other appellees, haven’t made any similar argument.

3 relying primarily on Foothills Meadow v. Myers, 832 P.2d 1097

(Colo. App. 1992), the stipulation for dismissal with prejudice

means no court has jurisdiction over the case. Both arguments fail.

¶6 The order disposing of the Smith issue may or may not have

been a final judgment. But regardless, the dismissal with prejudice

clearly constituted a final, appealable judgment. Id. at 1098; Dailey

v. Montview Acceptance Co., 514 P.2d 76, 78 (Colo. App. 1973) (not

published pursuant to C.A.R. 35(f)). And once the court entered it,

the legal ruling on which the dismissal was premised became

appealable. See BCW Enters., Ltd. v. Indus. Claim Appeals Office,

964 P.2d 533, 537 (Colo. App. 1997) (“[A]n interlocutory order

becomes reviewable when appealed incident to or in conjunction

with an otherwise final order.”); see also McBride v. CITGO

Petroleum Co., 281 F.3d 1099, 1104 (10th Cir. 2002) (notice of

appeal designating the final judgment is sufficient to support review

of all earlier orders that merge into the final judgment).3

3Of course, not all interlocutory rulings are appealable after the court enters a final judgment. See, e.g., Feiger, Collison & Killmer v. Jones, 926 P.2d 1244, 1250 (Colo. 1996) (“[T]he propriety of a summary judgment denial is not appealable after a trial on the merits.”).

4 ¶7 Further, the court’s order determining that the restrictive

covenant is a compensable property interest, in effect, completely

resolved the parties’ rights. See Brody v. Brock, 897 P.2d 769, 777

(Colo. 1995) (an order on a question of law was a final, appealable

order, notwithstanding that the court purported to dismiss the

plaintiff’s claim without prejudice, because it completely determined

the parties’ rights with respect to that claim); In re Custody of

Nugent, 955 P.2d 584, 587 (Colo. App. 1997) (orders entered before

court’s order of dismissal completely resolved the parties’ rights as

to the issue raised on appeal). That’s because the Town can’t

acquire property owned by the State via eminent domain, Town of

Parker v. Colo. Div. of Parks & Outdoor Recreation, 860 P.2d 584,

586-89 (Colo. App. 1993), and the Land Board owns several lots

benefitted by the restrictive covenant. So there’s no way for the

Town to eliminate the restrictive covenant on its lot in this

proceeding, at least if the district court’s ruling stands.4

¶8 But what about Foothills Meadow, on which the Land Board so

heavily relies? The short answer is that the Land Board misreads

4The Land Board recognized this in urging the district court to dismiss the case.

5 the case. It doesn’t hold that once a district court dismisses a case

with prejudice pursuant to the parties’ stipulation the case is over

for all purposes, and the dismissal, or the underlying ruling

prompting it, can’t be appealed. Rather, it holds, as does the case it

cites, Columbia Sav. & Loan Ass’n v. Dist. Court, 186 Colo. 212,

217, 526 P.2d 661, 664 (1974), that once a district court dismisses

a case with prejudice, that court loses jurisdiction over the case,

Foothills Meadow, 832 P.2d at 1097-98 (after the district court

dismissed case with prejudice, a party to that case couldn’t later

seek a declaratory judgment in that case against a new party

because “neither the action nor the parties remain[ed] within the

jurisdiction of the court”).5 So Foothills Meadow doesn’t apply to

the Town’s appeal.

¶9 In sum, we conclude that we have jurisdiction over the Town’s

appeal.

II. The Rule Announced in Smith Controls

¶ 10 The facts in Smith are, as appellees point out, somewhat

unusual, in at least one sense. A sanitation district sought to

5There are some exceptions to this rule. For example, the court would have jurisdiction to rule on a timely C.R.C.P. 60(b) motion.

6 obtain property on which it would build a “sanitary disposal

system.” 134 Colo. at 118, 300 P.2d at 548. That, of course, wasn’t

unusual. What was unusual was that after negotiations to buy the

property broke down, the owner of the property and owners of many

surrounding properties entered into a restrictive covenant barring

the use of their properties for certain purposes, including as

sanitary disposal systems. Their obvious goal was to try to prevent

the sanitation district from obtaining the property for its desired

purpose through eminent domain. Id. at 117-18, 300 P.2d at 548-

49.

¶ 11 Undeterred, the sanitation district filed a condemnation

petition anyway, naming only the owner of the subject property as a

party. The district court refused to allow the other property owners

to intervene, and they appealed. The supreme court phrased the

question before it as follows:

We are called upon to determine whether the intervenors by the execution and recording of these restrictive covenants should be made parties respondent in the condemnation case and permitted to recover damages because of the taking of the [subject property] for the uses of the District.

Id. at 119, 300 P.2d at 549.

7 ¶ 12 In holding that the restrictive covenant couldn’t be enforced

against the district, the court announced the following rule:

We think it is fundamental that where a company, corporation or agency of the state is vested with the right of eminent domain and has acquired property thr[ough] eminent domain proceedings and is using the property for public purposes, no claim for damages arises by virtue of such a covenant as in the instant case, in favor of the owners of other property on account of such use by the condemner. . . . Parties may not by contract between themselves restrict the exercise of the power of eminent domain.

Id. at 120-21, 300 P.2d at 550.

¶ 13 Taken at face value, this rule would seem to control this case

— meaning the restrictive covenant doesn’t give the other lot owners

a compensable property interest in this eminent domain proceeding.

But the district court concluded otherwise, saying that the rule

announced in Smith is “dicta” that applies “only in the unusual

factual context of that case.” In so concluding, the court gave

several reasons, some of which appellees adopt on appeal. Those

reasons are: (1) the holding in Smith is limited to situations in

which owners “scheme” in an “invalid” manner “contrary to sound

public policy” to prevent condemnation; (2) the restrictive covenant

8 in this case doesn’t actually “restrict” the Town’s exercise of its

power of eminent domain, the danger against which the Smith case

warned; (3) Smith rested its broadly stated rule, at least partially, on

property law concepts that are no longer valid; (4) Smith’s rationale

appears to conflict with United States Supreme Court decisions

holding that contracts are property within the meaning of the Fifth

Amendment’s Takings Clause; (5) applying Smith as broadly as the

Town urges would place Colorado in the minority of jurisdictions on

this issue; and (6) because of factual differences between this case

and Smith, Smith doesn’t control “even if one were to read [it] more

broadly than” the district court did. To these reasons the Land

Board adds that the Town agreed to the restrictive covenant when it

bought its lot.

¶ 14 In the end, almost all these arguments are subsumed by the

question whether Smith’s pronouncements of the law are confined

to situations where the landowners agreed to the restrictive

covenant for the purpose of thwarting a possible eminent domain

action. We aren’t persuaded that they are. Indeed, we’re persuaded

that Smith’s holding broadly applies to any situation in which a

restrictive covenant such as the one at issue is interposed as an

9 obstacle to a condemning authority’s attempt to obtain property for

public use through eminent domain. In our view, Smith holds, in

short, that a restrictive covenant of this type isn’t a compensable

property interest for eminent domain purposes.

¶ 15 We begin by acknowledging that the Smith court discussed,

and was apparently troubled by, the way the restrictive covenant in

that case came about. It did refer to a “scheme” by the property

owners; one “contrary to sound public policy and invalid as against

the constitutional and statutory rights of the condemner.” Id. at

119, 300 P.2d at 549. But the “scheme” — or, put another way, the

property owners’ intent — wasn’t the fulcrum of the court’s

decision. Had it been so, the court wouldn’t have needed to

articulate the rule set forth above. It could’ve just said that

regardless whether such restrictive covenants are compensable

property interests in this context, they aren’t when agreed to as part

of a scheme to muck up a condemning authority’s plans to acquire

property through eminent domain. But the court didn’t say

anything like that. Instead, it articulated a rule in broad terms,

without caveat. And it justified the rule with broadly applicable

policy reasons; specifically, (1) the difficulty a condemning authority

10 would confront if it “had to respond in damages for each interest in

a large subdivision or area subject to deed restrictions or restrictive

covenants,” id. at 120, 300 P.2d at 550; (2) the inconsistency of the

notion that property owners can, in effect, impose burdens on the

public’s right of eminent domain with the notion, which the court

approved of, that “[e]ach landowner holds his estate subject to the

public necessity for the exercise of the right of eminent domain for

public purposes,” id. at 121, 300 P.2d at 550 (quoting United States

v. Certain Lands in Town of Jamestown, R.I., 112 F. 622, 629

(C.C.D.R.I. 1899)); and (3) the concern that to hold otherwise would

“subject the public agency . . . to the payment of speculative and

unwarranted damages,” id. These policy reasons are implicated

whenever a restrictive covenant of the type at issue in this case is in

play, regardless of the property owners’ intent.

¶ 16 To all this, we add the observation that, in announcing the

rule, the Smith court cited several cases from other jurisdictions as

support. Id. None of those cases involved a scheme to thwart a

public entity’s exercise of its eminent domain power; all announced

a broad rule. See 2 Julias L. Sackman et al., Nichols on Eminent

Domain § 5.07[4][b] (3d ed. 2015) (citing all of those cases, and

11 Smith, as taking the minority view that a restrictive covenant isn’t a

compensable property interest). And other courts have cited Smith

itself as adopting a broad, non-fact-specific rule. E.g., Direct Mail

Servs., Inc v. Best, 729 F.2d 672, 676 n.2 (10th Cir. 1984); Leigh v.

Village of Las Lunas, 108 P.3d 525, 530 (N.M. Ct. App. 2004); Sch.

Dist. No. 3 v. Country Club of Charleston, 127 S.E.2d 625, 626 (S.C.

1962).

¶ 17 The district court and appellees assert that the division said

otherwise in Johnson. True. But it did so in dictum: the parties in

that case had stipulated that the restrictive covenant was a

compensable property interest, 252 P.3d at 1144, 1146, and so the

division’s discussion of Smith wasn’t necessary to its holdings

(which concerned the nature and valuation of the interest). See

Hardesty v. Pino, 222 P.3d 336, 340 (Colo. App. 2009) (a holding

and its necessary rationale aren’t dicta); Coon v. Berger, 41 Colo.

App. 358, 360, 588 P.2d 386, 387 (1978) (“[A]ny expression of

opinion on a question not necessary for the decision is merely obiter

dictum.” (citing Young v. People, 54 Colo. 293, 307, 130 P. 1011,

1016 (1913))), aff’d, 199 Colo. 133, 606 P.2d 68 (1980); Black’s Law

Dictionary 1240 (10th ed. 2014) (defining “obiter dictum” as “[a]

12 judicial comment made while delivering a judicial opinion, but one

that is unnecessary to the decision in the case and therefore not

precedential”). And, the division’s analysis of Smith was quite brief;

the division based its conclusions solely on the way the restrictive

covenant in Smith had been created. As discussed above, we don’t

agree that the Smith court’s pronouncements and underlying

rationale reflect any essential dependence on those circumstances.

See Johnson, 252 P.3d at 1147 (one division of the court of appeals

isn’t bound by another division’s prior ruling). As we read Smith,

the court was concerned with the negative practical effect restrictive

covenants of the type at issue have on public entities’ efforts to

exercise their constitutional and statutory rights of eminent

domain.

¶ 18 Given our conclusion that Smith holds that a restrictive

covenant of the type at issue isn’t a compensable property interest

in an eminent domain case, the remainder of our course is clear.

We must reverse the district court’s judgment and order. See In re

Estate of Ramstetter, 2016 COA 81, ¶ 40 (Colorado Court of Appeals

must follow Colorado Supreme Court precedent). Whether Smith’s

holding is based on sound policy, consistent with more modern

13 property law concepts, or reflective of a minority view simply doesn’t

matter. See People v. Novotny, 2014 CO 18, ¶ 26 (only the Colorado

Supreme Court can overrule its own precedents on matters of state

law).

¶ 19 But to put the matter completely at rest, we briefly address the

other rationales proffered by the district court and appellees.

 Contrary to the district court’s assertion, the restrictive

covenant at issue directly implicates the dangers with

which the Smith court was concerned. The court wasn’t

concerned merely with the authority’s ability to exercise

the power of eminent domain; it was mainly concerned

with the practical difficulties created by the need to

award damages — largely “speculative” damages — “for

each interest in a large subdivision.” Smith, 134 Colo.

at 120-21, 300 P.2d at 550. The subdivision in this

case has dozens of lot owners, all of whom can claim

the benefit of the restrictive covenant. (And, in any

event, as discussed, because the Land Board is a

property owner benefitting from the restrictive covenant,

the Town’s ability to condemn the restrictive covenant

14 would be foreclosed if the restrictive covenant were a

compensable property interest.)

 We don’t perceive any direct conflict between Smith and

the United States Supreme Court cases recognizing that

a contract may give rise to a compensable interest. The

two cases which the district court cited were decided

well before Smith. Lynch v. United States, 292 U.S. 571

(1934); Long Island Water-Supply Co. v. City of Brooklyn,

166 U.S. 685 (1897). Neither addressed the issue

addressed in Smith, and to our knowledge the Supreme

Court hasn’t addressed that issue in the interim.

 Assuming the Town was aware of the restrictive

covenant when it bought the lot, we don’t perceive its

buying the lot as an agreement to be bound by the

covenant. The Land Board cites no authority for the

proposition that a buyer of real property is, merely by

virtue of buying the property, forever barred from

challenging a restriction on that property’s use.

15 III. Conclusion

¶ 20 Perhaps the supreme court will one day revisit its holding in

Smith. But until it does so, and changes its mind, all lower courts

are bound to follow that decision. We therefore reverse the

judgment and remand the case for additional proceedings

consistent with this opinion.

JUDGE ASHBY and JUDGE HARRIS concur.